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Turner bites the silver bullet on bank reform

FSA chairman Lord Turner says the UK must stop searching for a “non-existent silver bullet” in attempts to solve the banking crisis.

At the Turner review conference in London on Monday, Turner said banks cannot be allowed to become “too big to fail” in the future but said that heralding the Glass-Steagall approach of splitting investment and narrow banking as the answer will only lead to more problems.

He said: “Extreme narrow banking would fail to address the most vital problem and could produce a financial system even more vulnerable to instability than today’s.” He said the vital problem the model fails to address is the misplaced view that market discipline is enough to ensure stability.

He called for a new Glass-Steagall approach that would limit riskier investment activities of banks through “active use of capital requirements” which would allow a “trade-off between greater internal separation and higher levels of whole group capital”.

Turner also reiterated his call for the creation of living wills for big financial institutions as well as the need for banks to hold contingent capital or debt capital that could be converted to equity capital if certain ratios are breached.

He said: “The optimal policy is highly likely to include a combination of different policies rather than searching for a non-existent silver bullet that solves our problems in one shot.”


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